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By Adriana Dungan, owner of Cardinal Business Consulting and contractor with the Center for Rural Affairs. Jessie Eby contributed to this article.
Most of us have a lot on our plates this time of year—literally and metaphorically. In the hustle and bustle of the holiday season, it’s important to remember to set aside some time to square away your business’s year-end finances.
Although it might sound overwhelming, we’ve got some great year-end accounting tips to help set your small business up for a successful and resilient new year. Let’s navigate the year-end financial landscape together.
Why is the end of year important for accounting in business?
The end of the year is significant because it marks the end of a financial reporting period. As you get ready to close out your books for the year, there are a few things you’ll want to address.
Track your progress with financial reporting
Use financial reporting to measure your business goals and achievements. Financial reports provide a comprehensive overview of your business’s financial performance for the year. This isn’t a requirement for all businesses, but it’s a good idea to complete one each year to track your business’s financial health. This report should include an income statement, a balance sheet, and a cash flow statement.
You can clearly gauge your business’s performance when you have a year’s worth of financial data to consider. By comparing your current financial report to previous years, you can assess whether your business is on track to meet its objectives and identify areas for improvement.
Tax compliance
Most businesses follow a fiscal year that aligns with the calendar year. This means you’ll need to report your annual income and provide accurate financial documents to comply with tax regulations. Failure to submit accurate tax returns could result in legal issues or financial penalties.
Budgeting
Use your year-end financial data to inform your budget for the upcoming year. With 12 months of data, you can make informed decisions, set realistic goals, plan for setbacks, and think about where growth is necessary. Now is a great time to review your business plan and determine whether you need to update it, or if it still serves your business.
Prepare your financials within your creditors and investors in mind
Investors and creditors, such as banks and bondholders, rely on year-end financial reports to assess your business’s financial stability. Keep them in mind while preparing your financial reports, making sure they’re comprehensive and easy to understand. Presenting accurate financial statements can help you maintain or improve relationships with key stakeholders.
How can business owners set themselves up for success in the new year?
Organizing all the necessary documents and pouring over a year’s worth of bookkeeping data is a daunting task if it’s something you’ve ignored throughout the year. Committing to keeping your finances organized in the coming year is one way to position your business for success in the new year. If you don’t yet have a tax professional or bookkeeper to help you with your finances, now is a great time to consider hiring one. Not sure where to start? We have staff ready to help you take the first step, and our assistance is always free for Nebraska residents.
Your year-end accounting to-do list
We know your year-end to-do list is already long, but there are a few things you’ll want to take care of to make sure your financial records are accurate and up to date.
- Check in with your tax professional: Schedule a meeting to review your finances and consider any last-minute tax-saving strategies, such as making deductible purchases or contributions.
- Reconcile bank statements: Review all bank and credit card statements for the year to make sure your records agree with your bank’s records.
- Update financial statements: Update your balance sheet and income statement to reflect your business’s financial performance and position for the year.
- Review accounts receivable and accounts payable: Do you have any outstanding bills or overdue invoices? Now is the time to tie up any loose ends.
- Take inventory: If you are a product-based business, you’ll want to take inventory and update your records to reflect your current inventory.
- 1099 Reporting: Make sure you’ve collected W-9 forms from all eligible vendors and contractors and prepare to file 1099 forms with the IRS.
Common accounting missteps to avoid
We know it's tempting to put off regular financial record maintenance throughout the year, and it’s not uncommon for small business owners to let it slide until crunch time. But forgetting to hold onto receipts, categorize expenses, or classify purchases in detail can result in unnecessary expenses. It’s not enough to simply categorize money spent as a “business purchase,” you need to be detailed in your records. Proper record-keeping, including detailed categorization, ensures a smooth financial process and helps avoid potential pitfalls.
You could choose to view these year-end accounting tasks as a checklist, or you can choose to view them as an opportunity to set strategic goals and celebrate your victories—big and small. As we say goodbye to 2023, know we’re rooting for your success in 2024. The Center for Rural Affairs is here to guide you as your business grows and changes.
